Crucial Interest rate decision next week from RBA

Australian Dollar Research Report

Crucial Interest rate decision next week from RBA

Stronger US heaps further pressure on the Aussie

Sterling Australian Dollar (GBPAUD) FX Technical Analysis

A big week for the Aussie dollar next week - the RBA’s interest rate meeting on Tuesday and then GDP on Wednesday. Interest rates are expected to remain steady at 2.5% for the remainder of the year but keep an ear out for the policy statement as to clues about what and when the next move in rates will be. There was an interesting move from the People’s Bank of China last Friday who cut interest rates rather unexpectedly - with one more rate cut on the cards, the central bank are trying to stimulate economic growth in the world’s second largest economy as it reflects on the slowest annual growth since 1990. As a massive exporter to China, Australia’s economy remains reliant on their demand and the RBA will be hoping that the Chinese economy fares better into 2015.

Over the Pacific Ocean and the United States are looking stronger - economic data has been supportive recently which has helped boost demand for the US dollar to the detriment of higher yielding currencies like the Aussie. With AUDUSD now trading at a 4 year low, further downside is expected and that will help support the GBPAUD cross. The key event data for the States appears next Friday with the release of US unemployment - a good showing there will see the Aussie sell off more aggressively. The pound took a bit of a dive mid-month after the Bank of England’s quarterly inflation report - Mark Carney downgraded growth forecasts for 2015-16 and also pushed back expectations for the first interest rate increase from Feb next year to Oct/Nov. Looking at recent service sector data, housing activity and the drop in prices, it all points to a UK economy that’s lost some of the momentum it had in the first half of the year and consequently the pound is expected to maintain current levels with perhaps a slight downward bias.

So GBPAUD found support mid-month at 1.7868, dropping after it had failed to make the previous high of 1.8682 (falling just short at 1.8649). A decent bounce back and it’s looking for another test of that 1.8650-80 level. In the context of the longer term charts this still does look like the consolidation phase of the larger recovery from 1.4330 low which should see GBPAUD push higher into next year. For the moment though it’s a range trade so position your orders appropriately.

For AUD Buyers

Targeting 1.84-1.85 has been the sensible play for the last 2-3 months and that remains the case. It’s certainly worth trading a portion of your funds at current levels with the balance set aside just in case we do get through 1.8680. That would open up 1.91, the previous high we saw earlier this year. Short term support comes in at 1.8250 onto 1.81 and major support at 1.7868.

For AUD Sellers

Market may be turning over again so possible to target 1.82 initially – would be sensible to leave a stop loss order in above 1.8680 if you have significant exposure.